China’s social media, games, and video giant, Tencent, experienced a 10% increase in revenues in 2023, reaching $84.6 billion (RMB609 billion). However, its net profits declined to $16.3 billion (RMB118 billion) from $26.3 billion the previous year.
Weakening Economy and Regulatory Concerns Impact Tencent
Tencent’s performance is directly affected by the slow recovery of the mainland Chinese economy following the COVID-19 pandemic and ongoing regulatory concerns. Despite these challenges, online advertising grew at a remarkable rate of 22%, reaching $14 billion (RMB101 billion), surpassing the overall economic growth rate.
Games Industry Woes
Tencent’s games sector, typically a strong pillar of the business, faced difficulties both domestically and internationally. The Chinese games industry regulators displayed uncertainty over the past year, initially attempting to restrict spending in games, then later issuing more approvals. In January, Tencent received approval for a mobile game with the National Basketball Association (NBA).
International games revenues for Tencent increased by 14% to $7.47 billion (RMB53.2 billion) in 2023. This growth, excluding the impact of currency fluctuations, can be attributed to the success of games like “Valorant,” recently launched titles such as “Goddess of Victory: NIKKE” and “Triple Match 3D,” as well as the recovery of “PUBG Mobile” in the second half of the year.
Chinese domestic games revenues grew by 2% to RMB127 billion ($17.6 billion), thanks to contributions from recently released games like “Valorant” and “Lost Ark,” as well as the emergence of new titles like “Arena Breakout” and “Fight of the Golden Spatula.” However, this growth was partially offset by a weak contribution from “Peacekeeper Elite.”
In the fourth quarter, international games revenues increased by 5% quarter-on-quarter to RMB13.9 billion, while Chinese domestic games revenues fell by 18% quarter-on-quarter.
Strong Online Content Businesses
Tencent’s two major online content businesses continue to be significant. The company reported an increase in profits for its Tencent Music Entertainment business, despite a decline in revenues. This reflects a shift towards fewer free users and a rise in paid music subscriptions.
On the video side, Tencent reported a steady 117 million subscribers. With these figures, Tencent Video appears to be China’s largest video streamer. However, the group does not disclose the unit’s profit or loss figures separately.
Management’s Perspective
According to a regulatory filing, Tencent’s management highlighted the company’s achievements in 2023. They mentioned breakthroughs in various products and services, such as the significant improvement of the advertising AI model’s targeting performance and the record 30% international contribution to games revenue. These accomplishments drove high-quality revenue streams, resulting in a gross profit growth of 23%. Management also expressed their commitment to increasing capital returns to shareholders.
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